Question

strikes, unions & collective bargaining math quiz
question 2 of 10: you believe there is a 25% chance that you will experience a strike. if that strike occurs, you will lose $100,000. what is the \expected value\ of your loss?
a) $0
b) $25,000
c) $50,000
d) $100,000

Explanation:

Step1: Recall expected - value formula

The formula for expected value $E(X)$ of a discrete - random variable is $E(X)=\sum_{i}x_ip_i$, where $x_i$ is the outcome and $p_i$ is the probability of that outcome. Here, there are two cases: a strike (with loss $x_1 = 100000$ and probability $p_1=0.25$) and no - strike (with loss $x_2 = 0$ and probability $p_2 = 1 - 0.25=0.75$). So, $E(X)=x_1p_1+x_2p_2$.

Step2: Calculate the expected value

Substitute $x_1 = 100000$, $p_1 = 0.25$, $x_2 = 0$, and $p_2 = 0.75$ into the formula: $E(X)=100000\times0.25+0\times0.75$.
$E(X)=25000$.

Answer:

B. $25,000$